Top Minnesota court sides with restaurant servers

Minnesota restaurants that make servers cover losses from dine-and-dash customers might rethink that practice after a decision by the Minnesota Supreme Court on Wednesday.

In the case of Jana Karl v. Uptown Drink, the court ruled the class-action case involving 750 servers and bartenders will go back to a district court, where "appropriate damages" for the plaintiffs will be determined.

Attorneys who represented the servers are under the impression "that it's a fairly common practice in the Twin Cities" for restaurants to demand that servers cover lost revenue when customers stiff the restaurant, said Steven Smith, lead attorney for the employees.

"It's just like any other business loss," Smith said. "You can't pass it onto your employees."

The case started in Hennepin County in 2010, when Karl and six other individuals who worked at three bars filed suit. They alleged the Drink bar in Uptown, another Drink in downtown Minneapolis, the Spin Night Club in downtown Minneapolis and Michael Whitelaw -- president of the bars' parent corporation -- made unlawful deductions from their wages to cover patrons who did a dine-and-dash or otherwise failed to pay.

After the Supreme Court's decision Wednesday, Smith said the case will now go back to Hennepin County District Court and a possible jury trial on the question of how much the defendants have to pay.

An amended award in the case in May would have delivered more than $691,000 to the plaintiffs, though the bulk of that amount would have gone toward attorney fees.

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Besides running out without paying, customers also found more creative ways to avoid payment, including not signing credit card receipts, court documents showed. Cash register shortages also led to deductions from employees' wages. Waitresses and others at the businesses had to cover the losses with cash taken out of their tips.

Calls to an attorney representing the restaurants and to Whitelaw were not returned Wednesday.

When the case went to trial in Hennepin County, the jury found for Uptown Drink, saying the businesses hadn't violated Minnesota's equal pay for equal work law.

But during testimony, witnesses for the employers had admitted that employees were required to pay for register shortages, customers who walked out and unsigned credit card receipts. Some trial witnesses also said employees who didn't cover the losses could lose their jobs.

At trial, the employers had said servers were required to pay for shortages "on occasion" but argued the payments weren't deductions because employees chose to make them to avoid being written up for mishandling cash.

After the verdict, the servers' attorneys asked for a judgment in their favor, which was denied.

The case then moved to the Minnesota Court of Appeals, which took up the question of whether the pay deductions were lawful as long as employees' wages still exceeded the minimum wage. The appeals court said the employees failed to show their wages ever fell below the minimum, and affirmed the district court's earlier decision.

That led to the Supreme Court decision, which said the lower courts erred. The "plain language" of the state statute "does not require employees to show that deductions caused their wages to fall below the minimum wage," the Supreme Court decision said.

Karl, the lead plaintiff in the case, declined to comment Wednesday and directed questions to Smith, the lead attorney.

Dan McElroy, executive vice president of the Minnesota Restaurant Association, said he doesn't think it is common for area restaurants to demand that servers cover losses from customers who don't pay.

"We advise our members that state labor law does not allow them to deduct from wages" for dine-and-dash customers, unsigned receipts and similar scams, McElroy said. "The law is very specific that you can't do that."

If servers do things intentionally -- such as allow friends to leave without paying -- owners can take action to fire those employees, he said.

McElroy noted that the restaurants in question in the lawsuit haven't ever been members of the Restaurant Association.

Uptown Drink filed for Chapter 11 bankruptcy in October 2011, listing assets of $354,485 and liabilities of $681,848. That case is still moving through the courts. Earlier this summer, the unsecured creditors' committee in the case objected to Uptown Drink's reorganization plan.